Other states are studying Oregon’s innovative Medicaid experiment, which could lead to different forms of reimbursement for clinical laboratories

Once again, Oregon’s Medicaid program is blazing a new trail in the delivery of healthcare. This time, Oregon is organizing its Medicaid services—known as the Oregon Health Plan—to do two things. First, it is developing 16 coordinated care organizations (CCOs)  across the state. Second, those Medicaid beneficiaries who represent the majority of costs to the program will receive special case management and clinical services.

Because there will be capitated payments to providers under this program, clinical laboratory managers and pathologists will want to understand how medical laboratories will be reimbursed by the Oregon Health Plan.

Budget-Slashing Measure Birthed New Medicaid Care Model

This ambitious state Medicaid reform effort came about because of a  budget-slashing measure passed by the Oregon legislature in June 2012. The new law established 16 coordinated-care organizations across the state.

The goal is to improve patient health and ultimately lower healthcare costs, noted one news report The new model’s primary tools are coordinated care, better communications between providers, and a capitated payment system.

The CCOs—some for-profit and some not-for-profit—provide a wide spectrum of health services to the 627,000 individuals covered by the Oregon Health Plan. Ninety percent of Oregon Medicaid beneficiaries were automatically transferred to care under a CCO. Each CCO is run by a local board composed of healthcare providers and community members.

Both Hospitals and Physicians Organized Medicaid CCOs

Some Medicaid CCOs are aligned with hospital systems. Others evolved from independent physician practice groups. Several CCOs are operated by insurers or mental health organizations. The CCOs receive a per-capita monthly payment to provide all care required by beneficiaries during the five-year demonstration project, which ends June 30, 2017.

One important element of the CCO game plan is to pay close attention to that small proportion of the Medicaid population that generates the most healthcare cases. Initially, the CCOs are focusing efforts on improving the health status of high-cost Medicaid patients with chronic health conditions. This includes individuals with dual eligibility for Medicaid and Medicare. The goal is to reduce utilization of hospital resources and decrease healthcare spending on these Medicaid patients.

Further, Oregon officials are hopeful that these state-established accountable-care organizations (ACOs) will eventually serve public employees and other Oregonians with private insurance.

Focus Must Change from Pricey Services to Prevention and Primary Care

Over the past year, providers of all types, including physicians, hospitals, clinics, county health departments, mental health agencies and others, have made an unprecedented effort to work together. Their common goal is to identify patients with heavy emergency room use.

“All provider entities are coming together; (and) they are all recognizing that we have to be communicating about patients,” Christina Milano, M.D., said in an interview with Modern Healthcare. “I’m starting to see a cultural shift within the medical community,” she added. Milano is a family doctor at Oregon Health & Science University’s federally qualified Richmond Clinic in Portland.

Northwest Kaiser Permanente President Andrew McCulloch (pictured) observed that for the Oregon Medicaid experiment to be successful, providers need to change their mindset from that of increasing revenue by utilizing pricey, high-tech services to an emphasis on increasing services that improve outcomes. This includes improvements to primary care and preventive health strategies. (Photo copyright Kaiser Permanente Northwest.)

Northwest Kaiser Permanente President Andrew McCulloch (pictured) observed that for the Oregon Medicaid experiment to be successful, providers need to change their mindset from that of increasing revenue by utilizing pricey, high-tech services to an emphasis on increasing services that improve outcomes. This includes improvements to primary care and preventive health strategies. (Photo copyright Kaiser Permanente Northwest.)

Oregon’s $1.9M Deal with CMS has Strings Attached

With the state’s Medicaid program strapped for funding, Oregon Governor John Kitzhaber, M.D., struck a deal with the Obama Administration to launch the state’s Medicaid experiment. The Center for Medicare & Medicaid Services (CMS) agreed to provide the state $1.9-billion over five years in exchange for Oregon promising to improve health outcomes and cut Medicaid per capita spending growth below the national average of 5.5% per year.

The financial goal is to cut spending growth to 4.5% in the first full year of the demonstration project and then 3.5% in each of the next three years, noted the Modern Healthcare report. If successful, this would trim the state’s current biennial budget from a projected $7.44 billion to $6.57 billion or less and save at least $3 billion over five years. Oregon’s deal with the CMS requires progress on 33 quality and access measures.

Despite issues, CCO efforts appear to be paying off. The quarterly progress report in November 2013 included data showing that CCOs are making progress toward the Medicaid plan’s goals. Highlights included reduced emergency department visits and costs, increased primary care visits, and expansion of electronic health records implementations, according to a report published by Salem, Oregon’s Statesman Journal.

Oregon Governor John Kitzhaber, M.D., formerly an emergency room doctor, spearheaded the state’s Medicaid reform experiment, which resulted in a new healthcare delivery model being hailed nationwide as a possible savior of the nation’s healthcare system. He is pictured here at a media conference to explain the new program. (Photo copyright Don Ryan/AP)

Oregon Governor John Kitzhaber, M.D., formerly an emergency room doctor, spearheaded the state’s Medicaid reform experiment, which resulted in a new healthcare delivery model being hailed nationwide as a possible savior of the nation’s healthcare system. He is pictured here at a media conference to explain the new program. (Photo copyright Don Ryan/AP)

Oregon experienced a $2-billion shortfall in the 2011 Medicaid budget. But rather than kick people off Medicaid, Kitzhaber said in an interview on Public Radio’s Here & Now, “we decided to redesign the business model by which healthcare is delivered.” This involved incorporating “best practices that had proved up around the country… a model that focuses on prevention and wellness and the community-based management of chronic conditions, which drives the bulk of medical costs,” he explained.

Kitzhaber’s Common-Sense Philosophy

As a former ER doctor, Kitzhaber noted that when people are dropped from Medicaid, it creates a barrier to access. “So these people go to the emergency room, and we end up treating stroke in the hospital rather than managing somebody’s blood pressure in the community. So it’s just like kids who drop out of school: they don’t disappear, you pick up the costs somewhere else in the system,” he emphasized.

What’s unique about this funding deal is its flexibility. Kitzhaber explained the program’s common-sense feature using his favorite story illustrating what’s wrong with our current healthcare system, in a report published by the Washington Post. A 90-year-old woman with well-managed congestive health failure lived in an apartment without an air conditioner. On a hot day, the temperature in her apartment would strain her cardiovascular system and kick her into full-blown congestive heart failure. He noted that under the current system, Medicare would pay for an ambulance and $50,000 to stabilize her, but not for a $200 air conditioner to prevent this health event. The new Oregon Medicaid model is authorized to pay for the air conditioner to keep her at home and out of the hospital, Kitzhaber said.

How Medicaid Reform Affects Pathology Groups and Medical Laboratories 

In other states forming Medicare and Medicaid ACOs that are similar to Oregon’s CCOs, pathology groups and medical laboratories will be affected by similar reimbursement reform efforts. On the plus side, the expansion of Medicaid enrollment creates opportunities for labs to provide more testing.

On the negative side, it still remains to be seen if capitated and bundled reimbursement associated with these innovative Medicaid programs further erode the finances of the clinical laboratories and anatomic pathology groups that provide services to the Medicaid beneficiaries enrolled in these programs.

—by Patricia Kirk

Related Information:

Inside Oregon’s Medicaid lab

Is the future of American health care in Oregon?

Eyes On Oregon’s $1.9 Billion Medicaid Experiment